New low-cost smartphones running Google's Android software have been launched in Taiwan recently and the good news is they should start showing up just about everywhere soon.

A new group of companies, electronics contract manufacturers, are starting to make high-end mobile phones, including smartphones, for mobile network operators around the world, and these are companies adept at slashing prices.

Taiwan Mobile's TWM T1.These manufacturers are companies many people in the West have never heard of, such as Quanta Computer, which makes laptop PCs for global giants including Hewlett-Packard and Dell. Quanta made an Android smartphone for network operator Taiwan Mobile, which launched on Tuesday. Another company, Commtiva Technology, a subsidiary of the world's largest electronics contract manufacturing company, Hon Hai Precision Industry, built an Android handset for Far EasTone Telecommunications, another Taiwanese network operator.

Taiwan has traditionally led the way with cost cutting in everything from PCs to game consoles and mobile phones, through low cost manufacturing on the island and in China. The prices of the two new smartphones are around half that of comparable models from major handset vendors. Taiwan Mobile next week will start selling the TWM T1 smartphone for NT$8,990 (US$280) with no service contract.

With a contract, the TWM T1 is still about half the price of comparable Android smartphones from major vendors, such as Samsung Electronics and High Tech Computer (HTC).

Taiwan Mobile offers the TWM T1 for NT$4,880 with a minimum monthly handset payment of NT$401 added to a user's phone bill over 12 months, which compares to a Samsung Galaxy i7500 for NT$11,100 with the same monthly payment, and the HTC Tattoo for NT$8,190 with the NT$401 monthly payment.

The price difference is partly caused by specifications on the phones. The TWM T1 sports a 3.2-inch touchscreen and a 3-megapixel camera, while the Samsung Galaxy has a better 3.2-inch AMOLED (active matrix organic light emitting diode) touchscreen and a 5-megapixel camera. The HTC Tattoo comes with a 2.8-inch touchscreen and 3.2-megapixel camera.

One example of the price of a full-featured Android smartphone is Google's Nexus One, which retails at US$530 without a contract.

Far EasTone unveiled the Commtiva T1 earlier this month for NT$9,990 (US$311) with no contract, billed as the first Android smartphone available in Taiwan for under NT$10,000. The device has a 3.2-inch touchscreen and 5-megapixel camera.

Far EasTone plans to launch four or five Android smartphones exclusively made for the company this year, according to Alison Kao, a spokeswoman at the company. Far EasTone expects its smartphone sales overall to rise as much as 30 percent this year compared to last year.

Commtiva's T1.Angela Lu, a Taiwan Mobile representative, said the company became interested in Android handsets as a way to provide low-cost phones with features its customers want and the Taiwan Mobile brand on the phone. She declined to say how many own-brand Android handsets Taiwan Mobile might launch this year.

The arrival of the smartphones heralds the beginning of price reductions on Android smartphones for consumers. The contract manufacturers developing the handsets are experts at making electronic devices and normally operate on slim profit margins, often below 5 percent, which is far less than, say, HTC, which reported a 32 percent gross profit margin in the fourth quarter.

The trend is in its early stages. Smartphones, handsets, mobile Internet devices and other communications accessories make up less than 1 percent of Quanta's total sales currently, according to Carol Hsu, a company representative. The laptop maker is working on smartphones with a few different operating systems, not just Android.

Commtiva declined to comment for this report.

A new wave of even lower cost Android smartphones should hit store shelves later this year due to the efforts of chip vendors around the world to create inexpensive hardware packages that include just about the entire insides of a mobile phone. Chips are among the most expensive parts in a smartphone so the work of chip makers, from Qualcomm to Infineon and Taiwan's MediaTek, to lower prices is important. These companies have been rolling out low-cost reference designs for smartphones, sort of like generic smartphone-making kits, based on their chips.

Indeed, the Mobile World Congress, which wrapped up last week in Spain, highlighted opening smartphones to the masses by introducing low-cost devices, according to Gartner analyst Jon Erensen.

“Lower-cost smartphones will be required to reach the mass market,” he wrote in Gartner's Semiconductor DQ Monday Report. “At Mobile World Congress, semiconductor vendors highlighted lower-cost, highly integrated, entry-level smartphone solutions designed to significantly reduce the bill of materials for smartphones and enable handset vendors to reach new price points.”

Infineon, for example, launched its XMM 6181 package of chips and other hardware, focused on making Android smartphones that cost around US$150, during the Mobile World Congress.

Earlier this month, MediaTek and Microsoft announced a package of hardware based on MediaTek chips and Microsoft's Windows Mobile OS aimed at electronics manufacturers in China. The hope is that companies in China will make cheap smartphones for people around the world, particularly in emerging markets. A similar package with MediaTek hardware and Google's Android software is due out in the second half of this year.

In the near term, the work Taiwanese contract manufacturers are doing will drive an initial wave of smartphone price reductions. Over the longer term – it takes several months to design a handset based on new chips – chip vendors will keep prices moving lower.

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